Hong Kong: Indian stocks are not cheap after their recent rally, but would get a boost if a strong government emerged from the country’s ongoing elections and jump-started spending on infrastructure projects, Mirae Asset Global Investments said.
Rahul Chadha, head of India equities at South Korean money manager Mirae, said that continued growth in the economy would be driven by rural and semi-urban demand, to the benefit of domestic consumption stocks such as motorcycle makers and telecoms firms.
Private sector banks would be a play on an early economic recovery in India, while steel and cement firms would benefit from infrastructure spending, he told Reuters in an interview.
“What is required at this point of time is stability, because the economy is just coming out of a slowdown and the need of the hour is a strong government which can take care of the recovery by kick-starting growth, essentially by focusing on the infrastructure spend,” Chadha, who is based in Hong Kong, said.
The ruling Congress party-led coalition is in a close contest with the main opposition Bharatiya Janata Party (BJP) and its allies in the month-long election. Vote-counting is scheduled for 16 May, and neither is expected to win an outright majority.
“It’s easy to kick-start all these development programmes like highways, railways and power, which is where it is really important that a strong government led by either the Congress or the BJP comes to power,” Chadha said.
Market leaders favoured
Asia’s third-largest economy grew about 6.5% in the fiscal year through March, according to a government estimate, the slowest rate since 2002/2003 as it was buffeted by the global slowdown and slumping domestic demand.
The main Bombay index has jumped 51% from a low in early March and trades at 13.8 times forecast earnings.
“I won’t say the market is expensive now, but it’s fairly valued, so the growth story needs to fall into place, the capex cycle needs to revive along with the strength in consumption demand,” he said.
Chadha manages about $900 million in India-focused funds. Seoul-based Mirae is South Korea’s largest fund manager, with $46.5 billion in assets as of April.
Chadha declined to talk about individual stock picks but said he prefers market leaders in his favoured sectors.
In the motorcycle sector, that would include Hero Honda and Bajaj Auto, while Bharti Airtel is the leader in a mobile phone sector that is adding 10 million users a month. Grasim Industries and ACC are leaders in the cement sector.
Among private sector financial institutions, the biggest players include HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Axis Bank.
Chadha prefers private sector banks over state lenders, such as State Bank of India, because government-controlled banks can be used to implement policy and are less market-driven.
The fund manager said India’s vaunted outsourcing sector faces slowing growth, now that it has grown to roughly $60 billion in size. He also said consumer staple stocks look fully valued.